Solving The Foreclosure Crisis

In some areas of the country, the homeowners’ are as much as 65% upside down. The Mortgage Bankers Association reports that there will be a significant increase in prime-fixed rate mortgage defaults, as the economy struggles with increased number of job losses expected. This does not even address the looming commercial property loans that are delinquent. Although the mortgage crisis seems to have started with the “sub-prime” loans and the loose lending practices, it has had a much deeper impact on the over-all US and world economy. As people lose their jobs or experience a slowdown in business and decrease in their household incomes, it is harder to meet their financial obligations.

One major issue that the foreclosure crisis faces is that many homeowners are not able to pay off the rise on the monthly payments on the mortgage that banks proclaimed in contracts. One way for the bank to not have to take back homes is to offer an expended loan with the old monthly payments before the increase. By expending loans, banks do not have to repo homes and sell it off dirt cheap. Also selling a home in a down market just drive away home buyers who cannot even take a loan out from the bank because of the empty reserves that most banks had. Banks can increase the interest rates on the homes but lower the payments so that it is more manage able for the home owners.

This, in turn, lowers the property value of the entire neighborhood causing potential buyers to avoid purchase. The problem is cyclical. According to a report by the Joint Economic Committee of Congress, the average foreclosure cost about $151,000, with several parties picking up the tab: Homeowner: $7,000, Lender: $50,000, Local government: $19,000, Impact on neighboring home values: $75,000, Estimated total cost of one foreclosure: $151,000, and billion in losses annually. In the end everyone loses. There are real estate investors who are purchasing homes.

There weren’t enough buyers to keep up with the supply, and mortgages began to go into default. Families across America were faced with the reality that they could no longer afford to keep their homes, and foreclosures began to flood the market, leading the nation into a deep recession. The government tried to help reduce the supply of homes on the market by introducing the tax incentive program for first-time home buyers. This program was successful in bringing new buyers into the market, but was not enough to diminish the over-supply of homes. My plan is a proposal to help homeowners continue to be homeowners, help banks create more mortgages that homeowners can afford, and reduce the glut of homes on the market.

When the housing market crashed subsequently the stock market crashed soon after it. As a result of both the real-estate and the stock market crash the banks opted out to tighten up their belts by increasing the criteria to apply for credit and loans. For most Americans who have or had middle class to poor income status it is almost if not impossible to apply for and receive credit now from a reputable bank institution. The foreclosure rate is exceptionally important to me because my family and I were considering buying a home in a year and we almost considered purchasing a house on the flex or adjustable rate. The thought of the possibilities of losing a house would devastate us because we have a young child and my husband and I just started our lives together.

As could be expected, many of these loans were foreclosed and the homes became the property of the banks. Additionally, the stock-market dropped, many companies had to lay off employees, and the unemployment rates in America grew considerably higher than usual. Employees who lost their jobs and did not quickly become reemployed are also more likely to experience home foreclosure, as they no longer c... ... middle of paper ... ...tors believe the market reached its bottom in March 2009 and is slowly rebounding since then. So now is the time that buyers will make real-estate investments, while prices are still below their usual market value. This activity will be increased if the government will lower overall income tax rates.

This year, the rate of foreclosure has increased from a problem into a crisis, and it is of increasing importance that the problem be solved. More and more Americans are loosing their homes as unemployment rates rise and it gets harder to pay the bills. High foreclosure rates cause homelessness to rise and banks to struggle. Since home loans are secure in the fact that if payments are not made, the bank can take the house, also called foreclosing it, the bank is less at risk. The problem with this system is that when the housing market is down, the banks cannot sell the house, and lose money in the deal.

In the process, consumer spending has suffered mightily and deepened the recession as Americans have seen the value of their most important assets, their homes, are falling in value. There were a lot of different factors that went into the development of the problem. There was buying a house that cost more than the people could afford, and there was taking on a mortgage payment that had monthly payments that were really high. There was the problem, too, of people who had no savings after they bought their house, so if anyone got sick or lost a job they couldn’t make their payments. Finally, experts are not sure of the solution to the foreclosure problem.

From 2008 until now the national unemployment rate has risen from 5-6% to about 10.2% (U.S. Bureau of Labor Statistics). With unemployment rates continuing to climb, more and more Americans are stuck in large mortgages with no means to pay them. Many of these debtors are faced with mortgages that are greater than the values of their homes due to impairment resulting from the market collapse. With the job market in its current state and unemployment continuing to grow, most of these debtors look to default as the best solution to their problems. Simply, the best preventive measure to the foreclosure crisis would have been to not to overextend yourself.

First, property values have declined; so many homeowners are left paying a mortgage on property that is worth less than what is owed. Sometimes, much less. Equity built up for children’s college or retirement has been eaten away. The relief period for those with modified mortgages is not long enough resulting in at least half in arrears again after just six months. Another problem we find within the crisis is government programs failing to live up to their promises.